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F5 Networks Announces Results For Second Quarter Of Fiscal 2016

The following excerpt is from the company's SEC filing.

- For the second quarter of fiscal 2016, F5 Networks, Inc. (NASDAQ: FFIV) announced revenue of $483.7 million, up 2 percent from $472.1 million in the second quarter of fiscal 2015.

GAAP net income was $75.4 million ($1.11 per diluted share), compared to $85.7 million ($1.18 per diluted share) in the second quarter a year ago. This result reflects the jury verdict and other associated costs with that patent litigation during the quarter.

Excluding the impact of this patent litigation expense, stock-based compensation and amortization of purchased intangible assets , non-GAAP net income was $114.0 million ($1.68 per diluted share), compared to $115.3 million ($1.59 per diluted share) in the second quarter of last year.

A reconciliation of GAAP net income to non-GAAP net income is included on the attached Consolidated Statements of Operations.

“Given the backdrop of a continued difficult macro and spending environment, I was pleased with our execution, as we delivered revenue within our guided range while maintaining solid profitability.” said John McAdam, F5 President and Chief Executive Officer. “In addition, sales of our Better/Best software bundles, Virtual Editions, and Silverline subscription services all grew during the quarter as customers continued to embrace hybrid strategies and venture into public and private clouds.

“This quarter, we will begin shipping our new 100Gb VIPRION blades, which deliver massive performance and scalability to help service providers manage and secure the exponentially increasing volume of wireless traffic. As I mentioned during last quarter’s conference call, several Tier 1 service providers have been testing the new blades, and feedback has been very positive. Also, in this quarter we will release version 5.0 of our BIG-IQ management platform, with major enhancements that include centralized management of all our Security products.”

2Q16/FY16 Earnings Release

For the quarter ending June 30, 2016, the company has set a revenue goal of $490 million to $500 million with a GAAP earnings target of $1.29 to $1.32 per diluted share and a non-GAAP earnings target of $1.77 to $1.80 per diluted share.

A reconciliation of the company’s expected GAAP and non-GAAP earnings is provided in the following table:

Three months ended

Reconciliation of Expected Non-GAAP Third Quarter Earnings

Net income

Stock-based compensation expense

Amortization of purchased intangible assets

Tax effects related to above items

Non-GAAP net income excluding stock-based compensation expense and amortization of purchased intangible assets

Net income per share - diluted

Non-GAAP net income per share - diluted

Share Repurchase Program

The company also announced today that its board of directors had authorized an additional $1 billion for the company's common stock share repurchase program. This new authorization is incremental to the $73.8 million currently unused in the existing program which was initially authorized in October 2010.

Acquisitions for the share repurchase program will be made from time to time in private transactions or open market purchases as permitted by securities laws and other legal requirements. The timing and amounts of any purchases will be based on market conditions and other factors including but not limited to price, regulatory requirements and capital availability. The program does not require the purchase of any minimum number of shares and the program may be modified, suspended or discontinued at any time.

About F5 Networks

F5 (NASDAQ: FFIV) provides solutions for an application world. F5 helps organizations seamlessly scale cloud, data center, telecommunications, and software defined networking (SDN) deployments to successfully deliver applications and services to anyone, anywhere, at any time. F5 solutions broaden the reach of IT through an open, extensible framework and a rich partner ecosystem of leading technology and orchestration vendors. This approach lets customers pursue the infrastructure model that best fits their needs over time. The world’s largest businesses, service providers, government entities, and consumer brands rely on F5 to stay ahead of cloud, security, and mobility trends. For more information, go to f5.com.

You can also follow @f5networks on Twitter or visit us on LinkedIn and Facebook for more information about F5, its partners, and technologies.

Forward Looking Statements

This press release contains forward-looking statements including, among other things, statements regarding the continuing strength and momentum of F5's business, future financial performance, sequential growth, projected revenues including target revenue and earnings ranges, income, earnings per share, share amount and share price assumptions, demand for application delivery networking, application delivery services, security, virtualization and diameter products, expectations regarding future services and products, expectations regarding future customers, markets and the benefits of products, and other statements that are not historical facts and which are forward-looking statements. These forward-looking statements are subject to the safe harbor provisions created by the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those projected in the forward-looking statements as a result of certain risk factors. Such forward-looking statements involve risks and uncertainties, as well as assumptions and other factors that, if they do not fully materialize or prove correct, could cause the actual results, performance or achievements of the company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to: customer acceptance of our new traffic management, security, application delivery, optimization, diameter and virtualization offerings; the timely development, introduction and acceptance of additional new products and features by F5 or its competitors; competitive factors, including but not limited to pricing pressures, industry consolidation, entry of new competitors into F5’s markets, and new product and marketing initiatives by our competitors; increased sales discounts; uncertain global economic conditions which may result in reduced customer demand for our products and services and changes in customer payment patterns; global economic conditions and uncertainties in the geopolitical environment; overall information technology spending; litigation involving patents, intellectual property, shareholder and other matters, and governmental investigations; natural catastrophic events; a pandemic or epidemic; F5's ability to sustain, develop and effectively utilize distribution relationships; F5's ability to attract, train and retain qualified product development, marketing, sales, professional services and customer support personnel; F5's ability to expand in international markets; the unpredictability of F5's sales cycle; F5’s share repurchase program; future prices of F5's common stock; and other risks and uncertainties described more fully in our documents filed with or furnished to the Securities and Exchange Commission, including our most recent reports on Form 10-K and Form 10-Q and current reports on Form 8-K that we may file from time to time, which could cause actual results to vary from expectations. The financial information contained in this release should be read in conjunction with the consolidated financial statements and notes thereto included in F5’s most recent reports on Forms 10-Q and 10-K as each may be amended from time to time. All forward-looking statements in this press release are based on information available as of the date hereof and qualified in their entirety by this cautionary statement. F5 assumes no obligation to revise or update these forward-looking statements.

GAAP to non-GAAP Reconciliation

F5’s management evaluates and makes operating decisions using various operating measures. These measures are generally based on the revenues of its products, services operations and certain costs of those operations, such as cost of revenues, research and development, sales and marketing and general and administrative expenses. One such measure is net income excluding stock-based compensation, amortization of purchased intangible assets and acquisition-related charges, net of taxes, which is a non-GAAP financial measure under Section 101 of Regulation G under the Securities Exchange Act of 1934, as amended. This measure consists of GAAP net income excluding, as applicable, stock-based compensation, amortization of purchased intangible assets and acquisition-related charges. This measure of non-GAAP net income is adjusted by the amount of additional taxes or tax benefit that the company would accrue if it used non-GAAP results instead of GAAP results to calculate the company’s tax liability. Stock-based compensation is a non-cash expense that F5 has accounted for since July 1, 2005 in accordance with the fair value recognition provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718 Compensation—Stock Compensation (“FASB ASC Topic 718”). Amortization of intangible assets is a non-cash expense. Investors should note that the use of intangible assets contribute to revenues earned during the periods presented and will contribute to revenues in future periods. Acquisition-related expenses consist of professional services fees incurred in connection with acquisitions. In addition, expense related to a jury verdict and other associated costs of that patent litigation have been excluded from GAAP net income for the purpose of measuring non-GAAP earnings and earnings per share in the second fiscal quarter of 2016.

Management believes that non-GAAP net income per share provides useful supplemental information to management and investors regarding the performance of the company’s core business operations and facilitates comparisons to the company’s historical operating results. Although F5’s management finds this non-GAAP measure to be useful in evaluating the performance of the core business, management’s reliance on this measure is limited because items excluded from such measures could have a material effect on F5’s earnings and earnings per share calculated in accordance with GAAP. Therefore, F5’s management will use its non-GAAP earnings and earnings per share measures, in conjunction with GAAP earnings and earnings per share measures, to address these limitations when evaluating the performance of the company’s core business. Investors should consider these non-GAAP measures in addition to, and not as a substitute for, financial performance measures in accordance with GAAP.

F5 believes that presenting its non-GAAP measure of earnings and earnings per share provides investors with an additional tool for evaluating the performance of the company’s core business and which management uses in its own evaluation of the company’s performance. Investors are encouraged to look at GAAP results as the best measure of financial performance. However, while the GAAP results are more complete, the company provides investors this supplemental measure since, with reconciliation to GAAP, it may provide additional insight into the company’s operational performance and financial results.

For reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure, please see the section in our Consolidated Statements of Operations entitled “Non-GAAP Financial Measures.”

Consolidated Balance Sheets

(unaudited, in thousands)

March 31,

September 30,

ASSETS

Current assets

Cash and cash equivalents

398,325

390,460

Short-term investments

376,680

383,882

Accounts receivable, net of allowances of $1,726 and $1,979

266,185

279,434

Inventories

35,179

33,717

Deferred tax assets

50,673

50,128

Other current assets

66,939

50,519

Total current assets

1,193,981

1,188,140

Property and equipment, net

107,545

95,909

Long-term investments

319,287

397,656

Goodwill

555,965

Other assets, net

64,682

68,128

Total assets

2,242,140

2,312,290

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities

Accounts payable

37,243

50,814

Accrued liabilities

143,511

130,401

Deferred revenue

619,681

573,908

Total current liabilities

800,435

755,123

Other long-term liabilities

32,190

30,136

Deferred revenue, long-term

222,977

209,402

Deferred tax liabilities

Total long-term liabilities

260,711

240,439

Commitments and contingencies

Shareholders’ equity

Preferred stock, no par value; 10,000 shares authorized, no shares outstanding

Common stock, no par value; 200,000 shares authorized, 66,981 and 70,138 shares issued and outstanding

25,181

10,159

Accumulated other comprehensive loss

(13,558

(15,288

Retained earnings

1,169,371

1,321,857

Total shareholders’ equity

1,180,994

1,316,728

Total liabilities and shareholders’ equity

(unaudited, in thousands, except per share amounts)

Three Months Ended

Six Months Ended

Net revenues

Products

225,441

244,116

460,119

485,053

Services

258,236

228,027

513,044

449,883

483,677

472,143

973,163

934,936

Cost of net revenues (1)(2)

39,908

43,600

82,559

85,670

42,322

38,996

85,354

76,274

82,230

82,596

167,913

161,944

Gross profit

401,447

389,547

805,250

772,992

Operating expenses (1)(2)

Sales and marketing

156,469

151,238

313,925

300,054

Research and development

86,294

74,521

167,439

144,581

General and administrative

34,803

30,933

69,056

63,187

Litigation expense

286,514

256,692

559,368

507,822

Income from operations

114,933

132,855

245,882

265,170

Other income, net

Income before income taxes

115,066

136,121

247,150

271,030

Provision for income taxes

39,651

50,392

82,019

96,225

75,415

85,729

165,131

174,805

Net income per share — basic

Weighted average shares — basic

67,549

72,240

68,557

72,801

Net income per share — diluted

Weighted average shares — diluted

67,804

72,711

68,881

73,326

Net income as reported

Stock-based compensation expense (3)

41,773

36,777

80,006

67,402

(15,649

(10,556

(26,437

(19,185

Net income excluding stock-based compensation expense, amortization of purchased intangible assets and litigation expense (non-GAAP) - diluted

114,006

115,264

234,570

229,485

Net income per share excluding stock-based compensation expense, amortization of purchased intangible assets and litigation expense (non-GAAP) - diluted

Weighted average shares - diluted

(1) Includes stock-based compensation expense as follows:

15,957

15,360

30,832

27,987

13,784

12,193

26,614

22,633

13,274

10,025

(2) Includes amortization of purchased intangible assets as follows:

(3) Stock-based compensation is accounted for in accordance with the fair value recognition provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, Compensation – Stock Compensation (“FASB ASC Topic 718”)

Consolidated Statements of Cash Flows

Six Months Ended

Operating activities

Adjustments to reconcile net income to net cash provided by operating activities:

Realized loss (gain) on disposition of assets and investments

Provisions for doubtful accounts and sales returns

Depreciation and amortization

27,847

26,254

Deferred income taxes

(1,213

Changes in operating assets and liabilities:

12,726

(21,693

(1,462

(4,872

(16,302

(4,792

Accounts payable and accrued liabilities

59,348

83,839

Net cash provided by operating activities

336,989

328,691

Investing activities

Purchases of investments

(138,925

(254,819

Maturities of investments

173,165

251,773

Sales of investments

47,742

79,211

Decrease (increase) in restricted cash

Acquisition of intangible assets

(3,250

(6,224

Purchases of property and equipment

(29,793

(20,502

Net cash provided by investing activities

48,947

49,095

Financing activities

Excess tax benefit from stock-based compensation

Proceeds from the exercise of stock options and purchases of stock under employee stock purchase plan

18,594

16,655

Repurchase of common stock

(400,077

(306,863

Net cash used in financing activities

(380,105

(286,022

Net increase in cash and cash equivalents

91,764

Effect of exchange rate changes on cash and cash equivalents

(5,661

Cash and cash equivalents, beginning of year

281,502

Cash and cash equivalents, end of year

398,329

367,605

The above information was disclosed in a filing to the SEC. To see the filing, click here.

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